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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Suppose you learned that the price elasticity of demand for wheat is 0.7 between the current price for wheat and a price $2 higher per bushel. Do you think that farmers collectively would try to reduce the supply of wheat and drive the price up $2 higher per bushel? Explain your answer. Assuming that they would try to reduce supply, what problems might they have in actually doing so?

To determine

The price and supply of wheat.

Explanation

The farmers are always interested to raise the price up to $2 per bushel. The reason is that the price increase leads to increase the consumer’s total cost of wheat. This is more than the revenue loss due to reduce in the supply of wheat. This plan to increase the price up to $2 per bushel depends on a couple of issues. They are listed below:

  • An increasing imports of wheat from foreign countries will reduce the demand for wheats in the domestic market...

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